Reduce Debt Increase Wealth

Budget Control Center

October 02, 2022 MIsterchuck Season 3 Episode 133
Reduce Debt Increase Wealth
Budget Control Center
Show Notes Transcript

Budget is the control center of personal finances. Without a budget it is impossible to determine the success of goals or determine how and when the goals will be achieved. 

 Article Links:

https://www.rockethq.com/learn/credit/personal-budget-what-is-it-and-why-do-i-need-one By Molly Grace

https://www.thebalance.com/reasons-to-budget-money-2385699 By Miriam Caldwell

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence determination. Budget Control Center budget is the control center of personal finances. Without a budget, it is impossible to determine the success of goals are determining how and when the goals will be achieved. So what is a personal budget, much like a business must develop a budget to ensure it's spending money efficiently. And that spending more than it can afford individuals who want to monitor their finances and ensure their spending responsibly, must develop their own personal budget. And I have links in my show notes. And the first one here is wiki how keep track of your personal finances. And the other one is the balance.com isn't important to track my expenses. Well, as you can see, yes, it is. A personal budget or household budget simply tracks I households money in versus money out. Through a budget can be used to help an individual or a family spend less and save more. It is at his most basic planning and tracking tool. It is your control center of your finances. The tracking is the motor that drives your personal finances, the income and and then expenses out that you must pay to live on a daily basis to pay and meet your needs. Without being overdrawn on your checking account without having to worry about how much money where the money's gonna come from. A budget helps you control that helps you see where your money is gone, helps you see where he may be spending money in the wrong categories. And planning ahead. A part of your budget should include all your needs, needs would be housing, transportation, food, clothing, you should also include savings, setting the money aside in a savings account. Pay yourself first as lot a lot of people do is when you pay yourself first year are increasing your emergency fund, so that when an emergency happen, it's not gonna be a drain on your finances. You won't have to use a credit card to pay for it. It keeps you out of debt, it keeps you happy. And then the emergencies are not as bad, as if you're scrambling to figure out how you're gonna pay for it. Budgeting is all about being intentional with the ways you spend money and planning ahead to help ensure you don't run into any inconvenient or potentially financially rebellious surprises before you receive your next paycheck. This planning ahead also means you can save money for future goals and figure out exactly how long will it take you to reach them. A budget also helps you be more confident and spending money on things you want. But not necessarily need. Instead of feeling guilty or worrying about the cost of something will have you eating ramen for the rest of the month. You'll know exactly how much you can spend without having to take away from other more vital areas is called Planning. Again, your budget is your control center of your personal finances and a good budget set up correctly. You can spot problems before they become a problem. While they're in the development stage. You can maybe catch it and curb some of your spending errors least slow it down. Why budgeting is important aiming aren't trying to reach a goal like saving a certain amount of money or paying down debt. Having a personal budget is still key to better financial health. tracking the money you span and planning ahead for future expenses can prevent you from overspending or spending money that is needed for upcoming expenses. having it written down helps you will visualize how much money you have to work with and what you're spending that On, unless you're a wealthy heir with magical endless source of funds, you only have a certain amount of money to work with each month that your income. And on the other side of the equation, you have certain expenses, that money goes towards each month, money that you've already committed to pay every month, whether it's a mortgage payment for your home, a car payment on your car, student loan payments, whatever it may be, you've already committed that you got to pay it. And also, your needs would be activities for home, to keep yourself comfortable, and course food and clothing to keep yourself alive. So how do you set up a budget? Now you know that it's important. And what else were a budget do well is going to help you stop overspending, it's going to help you reach your goals, it's going to make it easier to save money, and to build up your emergency fund. So that you can quit using that credit card. So you can quit creating new debt, which is important, especially if you're struggling with debt. And my next episode, we're going to talk about a debt reduction plan or your debt management plan. And the number one thing to remember is you got to quit using credit, or quit creating more debt. So how do you go about setting up a budget? If you listen to the previous episode, and I talked about tracking, and if you're using it, if you're doing it manually is you got to manually add everything up. Go through add everything up for the month by category and then manually set up a budget. So you'd have three columns. Well, you have four columns, the first column is a description of your category. The second column is budget. The third column is actual. And the fourth column is the difference between your budget and actual. In a perfect world, your actual will always be a little bit less or equal to your budget. That means your spending is on track. You're staying with the guidelines that you set for yourself. I'm not setting those guidelines, you are this is a self control mechanism. That's why I'm calling it the control center. Have your personal finances. Because with out the budget, you have, you only know through tracking money in and money out. At the end of the month, how much money is left in your checking account? Maybe it's a negative balance. Maybe it's a small positive balance. Maybe it's a large positive balance. But what are you spending your money on? Just by tracking it. Maybe you can do a report? Yes, that's gonna help but we're going to compare it to if you don't know. So you create a budget. So you've done your tracking for at least 30 days or one full month. And I recommend to start at the beginning of a month and go through an end of a month. That way you get all your rear curring payments, expenses included. If your income is the same every pay period, then your income is whatever your net paycheck would be. So it doesn't change. But if you like me, and your pay from paycheck to paycheck goes up and down, you need to figure out an average pay for your income portion of your budget. So your budget is gonna start with your income, which is coming in less your expenses. So income less expenses equals the bottom money saved. This does say it that applause are a negative number. A plus number means you spent less than what you earn. A negative number means you spent more than what you earn. But it varies from month to month. Maybe it's a timing thing. Maybe you didn't really bet it that month it shows that you did but the other month he had a big positive the next month he got a big positive. It's just a timing thing. So it gets confusing. If you're just looking at your tracking reports. It could be really confusing. So we get back to the budget. We got one month of tracking. He wants to create every port by category for for that month from the beginning of the month, to the end of the month, and most of these are going to put it in alphabetical order by category, or it's going to put it an order by the cow, the categories are grouped together within that tracking program. Create that report, make sure it's got totals, because you want your housing to be one total. And then if you expand it out, you can see all the subcategories within housing. So for example, housing would have your first mortgage, your line of credit, it may be you'll have utilities, maybe not. And utilities would be gas, natural gas, electric, water, and sewer trash, internet service. Phone Service could also be part of that. But most people have cell phones. Now, it may not be connected to your home. But let's leave it there. When we are comparing percentage of your gross income for your housing, we're only referring to the mortgages, we're not referring to your utilities and everything else that belongs to the housing. So I put everything that belongs that is attached to the home, and a category call it housing. I don't separate the utilities, because he had Tuileries or are connected to that home or apartment. That's why I do that. Transportation, same way, it'd be all your auto automobile loans, your gasoline repair and maintenance, title on registration. Everything related to the automobile. Also, it would include monthly passes from public transportation, or bus or train passes. If you travel by train, or subway, or even ferry if you have to take a ferry to get back and forth to work at for example, example. So all your public transportation costs would be part of transportation. Food would include everything you buy at the grocery store is related to food, not gasoline, and dining out. So I would have two categories, one called groceries, and one called dining out, he might have one called coffee shops. It's up to you. And that would be your food. And then clothing, I would do a category called clothing. And I would include the first name of everybody in the household. How much money did you spend for clothing for yourself, for your spouse, for you children who didn't, you don't need to break it down. As far as the cost of shoes, or the cost of pants or cost of underwear, or the cost of business suits or skirts or blouses, just group it by the person. And that would be a clothing. And now you got your category set up for your budget for by your needs. Next we got here once once would be entertainment. It could also be dining out if you do some special but I would still include that in the needs portion. Hobbies, miscellaneous shopping, buy cleaning supplies, lawn and garden lawn care, gym subscriptions, memberships, all those types of things would be your wants once or things that you don't necessarily need, but like to have. So he get all that done. If you did a report from your tracking software, at the top of it should be your income. So when you go into your spreadsheet, and I recommend setting it up on a spreadsheet, if you can create that report to PDF and do a copy and paste, I'm not sure if that would work. But if he could do that you can copy and paste your categories in. You could arrange them how you want them arrange but I'd leave them the same. So when you start plugging numbers, you just go right down the line and you enter your numbers. So that's what you do. So we're the ferry getting started. Your budget is basically everything you spent money on the previous month, the first month that you started to track these things, that becomes your budget target amount, then next month, once every pay, because you're gonna be updating your tracking every pay day, because you got to put in your income. And you're going to update all your expenditures and everything you paid for, you do a report from the beginning of month through that pay date. And that gives you your actual current numbers. And you put that in the actual column related to the category. The difference is this a math equation that you put in there and a plus, you know, budget less actual equals F, it's a positive number, you're in good shape, because you're still under budget. If it's a negative number, then your actual has exceeded your budget. So you need to look at the detail to find out what's going on, where you may have spent more money, which may not be a bad thing, it just may be a monthly thing or a quarterly thing that popped up. That wasn't included in your original budget. So you may be need to include that in your original budget. You do that every pay period until you get to the end of the month. Now you can look at, okay, two months ago, this is what I spent last month. This is what my I spent last month was more than the previous month. Why is that? This is your control center, you look back at your detail, where did you spend money in the most previous month versus the very first month. If it's something that pops up quarterly say you pay your trash bill, once a quarter, and it wasn't in the previous month? Well, now you may be, let's include it as part of your budget. So you go and eat up your budget, the amount of your trash payment that once a quarter, now you're gonna have three months, where you're going to be under the budget, which is good. And you're going to have one month, which you're going to be spot on your budget if nothing changed. If your utilities vary from month to month, you need to figure out an average, you need to go back three, four months, add them all up divided by three or four, whatever you use, and come up with an average. Now when you're using averages, your actual may vary a little bit. But if it's close within five or $10, even $20, we're not going to worry about because you're close, he can fine tune that budget until you get it fairly close. But if it's always varying, it's it's hard to do. So we're just trying to get an idea. We want to know if that category is way out of whack, that you want over by $100 or $200. Or if it's somewhat close, if it's within $20, you're close, you're doing good. And anything that you don't spend money on, you should be transferring into your savings account. Because if you put it in your savings account, you better be less likely to spend it in the future because it's not there in your checking account. Remember, a part of your budget is money transferred to your savings. And I would call it an emergency fund. To start with, you need to start build it up to $1,000. And then after you reach $1,000, you need to build it up to at least three months of your living expenses that you have to pay every month. And why you want to do that. In case you get unemployed in case you get sick and can't work for a couple months, you have something to fall back on. And you're not going to struggle and use credit cards to live off of. So the goal here is to keep track of everything. Use your budget as your control center, use it to monitor your spending, use it to monitor where your money is going, and how much more is coming in, and how much you can save. And if you can figure out, Oh, I'm only saving $100 a month. But by my budget here, I can save 300 hours a month. So now my goal is going to be reached two three times faster because I'm saving three times more money. So it's to your benefit. And you're not cutting back on anything at this point. You want to monitor your budget. And if you see something you're no longer using, why are you still paying for it? If you see something that maybe you can live without? While you're paying for it, go ahead and cancel wit, and that'll free up money to help you pay other bills, or to increase your emergency fund or increase your savings for whatever you want to use it for. I'll be back in one moment with my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question, you can send it using my email, reduce debt, increase well@gmail.com. reduce debt, increase wealth is all together no spaces. If you'd like to ask a question, quick question in the subject, if you'd like to request my monthly budget, put bit spreadsheet in the subject matter if you want to leave a response of any kind is put a comment in the subject matter. I will get back to you as soon as possible. So when I say use a report, from your tracking, to set up your budget for your categories, that way, you don't have to go online and find a template that may or may not work for you. You make it work for you. You're setting it up based on where your money is already going, and how your categories and thing. So it's important that you're consistent, and categorize and thanks. So if you go to the grocery store, and normally you use your buying groceries, but you go there and you buy gasoline, gotta make sure that that gasoline purchase is categorized as gasoline and not as groceries. Or it could throw your grocery fun way out of whack. And you wonder, why did I spend so much money at the grocery store? What did they eat their front? That cost so much more? Wow, no, it was gasoline for the car. Price and gas is way up. So that's what happened. So that's the reason it's important to be consistent. When you're categorized. Think as your budget, it's not there to hurt you, it's there to help you. At your control center, it helps you focus on where your money is going. Also within your budget, you should have a section for all your debt. Now most of the debt is going to go into the category which blocks the debt for your home is going to go and housing debt for your automobiles is good go and transportation. But worse credit card debt gonna go. You want to create a your own credit card category and put it in there. Everything that you are paying for the credit card is credit card debt, doesn't matter what you use the credit card to pay for, you got to pay that debt. And that's gonna be a monthly payment. And as you look forward to the next episode, when I talk about debt reduction, or a debt management in the budget is the number one place you start for your debt management and debt reduction plan. So you have a section where you list all your credit cards. And I have a spreadsheet that details that out it's got the beginning balance, it's got payments, span, new charges, ending balance, it's simple to use. And I have a setup for a yearly so you got one month for a whole year. You can save it as year 2022, for example. And then you can keep the original spreadsheet and then you can save it 2023 Then you can look back what was last year versus this year. You can look back as you have it, you have the details. If you keep everything up, not only is your needs and your wants and your credit card payments, and ad LM miscellaneous loan payments, well that'd be like student loans, payday loans, personal loans. If it's not connected to your home, your home is not collateral. And if your automobiles not collateral, then it'd be in its own section and I call that credit or debt. Having it under control, seeing where your money has gone, monitoring it on a regular basis as you go throughout the month to make sure you're still on track because with your get off track early in a month, you can fix it and you're not going to struggle later on. The purpose of this is control your spending. Know where when and how much you need to pay your bills so you're never coming up short so you're never going have to use a credit card to live off of and you'll be glad you did so